In the thread beneath one of my most recent articles about the 2012 report on digital music from the International Federation of the Phonographic Industry, StevieBee123 asked: "Sorry – what exactly do we need record companies for again?" LawlessGreed replied with a question of his own: "If there is no music industry, how are musicians supposed to earn a living from their work?" to which malcolm replied: "Try, ehhh, selling direct to the pubic … no brainer!" That discussion, as well as one I had on Twitter has highlighted a certain confusion regarding what today's record labels actually do.

It's true the internet has been brilliant for artists in many ways, giving them an alternative route to make contact with and sell directly to fans, but record labels do much more than distribute to retailers. I recently spoke to Ed Sheeran's producer, Jake Gosling (more of which will appear in next week's Behind the Music), and asked why Sheeran had decided to sign with Asylum/Atlantic, part of Warner Music Group. After all, by working extremely hard for years the two of them had been able to record numerous EPs on their own, get to No 2 on the iTunes charts with one of them, get millions of hits on his SBTV video for You Need Me as well as win some support from Radio 1 and 1Extra – all without the help of a record label.

"What Ed and I had done without a record company had proven to the label that we could do it on our own, that all we needed was help and support and finance, getting us to more people and being able to pull the strings when needed to get us on a TV show – those moves are harder to do when you're a bit more independent," Gosling explains. This also led to the label taking quite a hands-off approach when it came to the recordings, as Gosling and Sheeran had proved what they did already worked.

There's also something to say for local expertise. I may have understand how the UK, US and Swedish music scenes work, but I know little about the industry in mainland Europe. Though Fleet Foxes decided to sign with SubPop for the US, Simon Raymonde managed to convince them to sign with his label, Bella Union, for the rest of the world, because he had people all over Europe who could work the record in individual territories. Judging by their success in Europe, they made the right decision.

It's also simplistic to say majors are evil while indies are good. What is important is to be on a label that "gets you". "There is a really cliched view out there about record labels," Gosling says. "I can't speak for every label or A&R man, because there are those who will suck the life out of a project, but particularly with Asylum, it was a really good experience."

Recently Azealia Banks went from indie to major and signed with Universal after complaining about her treatment by XL Recordings. I'm sure there are two sides to the story, but whatever those are it's clear that she and XL just weren't a good match for each other.

Over the past decade labels have realised they're not the only game in town and they have to justify their existence. Sure, there are still some of the old guard sitting at the top of the majors, but they all have young online promotion and social media departments (actually, age has little relevance – Martin Mills, the head of Beggars Group, is in his 60s and goes to gigs several times a week).

For artists such as Sheeran and Banks, who have managed to gain a fanbase before being approached by labels, record deals tend to be much more advantageous than the old type of contracts. Some artists retain ownership of their music and some, as in Sheeran's and Labrinth's case, get their own label imprints.

I used to be signed to a major publisher (I signed to BMG, which was later bought by Universal), and though – like most artists – I've had my issues with it through the years, I'm grateful for the opportunity it gave me. I can only imagine walking into a bank asking for a £100,000 loan, saying: "I'd like to use it to pay my living and work expenses for the next four years, so that I can develop my craft by being able to write full-time and work with songwriters all over the world. You'll make it back from the royalties the songs I write during those years will accumulate. And if you don't, I don't have to pay that money back. What? You need some kind of guarantee? Just listen to these new songs I've written." They'd laugh me straight out of the door.

But BMG signed me purely on the belief my songs were good enough to recoup their investment. Incidentally, they did make it back, and now we split the royalties with me getting more than they do. Universal Publishing even eventually agreed to give me back the songs written during my deal but had not been releasedby the time we parted ways.

The public sees the artist and hears the music, but what they don't see is the whole world of people doing things behind the scenes to help them, Gosling says. "You still need labels. You've got to remember they've got marketing teams, press teams, radio pluggers, accounts departments and when you get bigger you need help with that stuff. You need a good team around you. OK, maybe you could hire those people yourself and set up your own label, but there's something to be said for deciding that you want to make music and be creative, and I don't want the hassle. You can be really creative but not very good at business and marketing. For example, I don't know what Leonard Cohen's business acumen was like."

Even Neil Young, an artist known for taking an anti-corporate stance, recently sang the praises of record companies, when interviewed at a media conference. "What I like about record companies is that they present and nurture artists," he said. "That doesn't exist on iTunes, it doesn't exist on Amazon. That's what a record company does, and that's why I like my record company. People look at record companies like they're obsolete, but there's a lot of soul in there – a lot of people who care about music, and that's very important."

So, what about those artists who complain about the labels? "Those artists should go by themselves," concluded Young. "They have a choice of what they can do. Artists who want to go it alone should just do that."